Thursday, January 18, 2018

Update on Unpaid Interns

Several years ago, the Department of Labor issued a Fact Sheet (#71) addressing when internships may be unpaid (versus falling under the general FLSA employment requirements, including the requirement that employers pay workers at least a minimum wage and overtime). The Department advocated for a stringent six-factor test that would have led to many unpaid internships being deemed unlawful, and requiring many unpaid interns to receive minimum wage and overtime.

DOL's 6-factor test did not fare well in the courts. One high-profile example was Glatt v. Fox Searchlight Pictures, involving interns who worked on the movie Black Swan. The Second Circuit rejected the DOL's 6-factor test and instead used the "primary benefit" or "primary beneficiary" test. "[T]he proper question is whether the intern or the employer is the primary beneficiary of the relationship."

Not official use.
This month, the DOL abandoned its 6-factor test and issued an updated version of Fact Sheet 71. The new Fact Sheet basically reiterates (almost word for word) the test from Glatt:
In short, this test allows courts to examine the “economic reality” of the intern-employer relationship to determine which party is the “primary beneficiary” of the relationship. Courts have identified the following seven factors as part of the test:  
1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.  
2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.  
3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit. 
4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.  
5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning. 
6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern. 
7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship. 
Courts have described the “primary beneficiary test” as a flexible test, and no single factor is determinative. Accordingly, whether an intern or student is an employee under the FLSA necessarily depends on the unique circumstances of each case.
Generally, this test will make it easier for unpaid internships to pass FLSA muster.

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